You are asked to demonstrate your recently acquired skills in risk management in a business context. The project will also prepare you gradually for the final Risk Management hedging project.
Insights Capital.Insights Capital hires MBAs both for their expertise
and professionalism in communication with clients.Insights Capital was recently approached by
SmartOil to produce a fact-based short paper to understand
context and risk associated with Oil and Natural Gas in Canada.SmartOil is a consortium of senior executives with a
background in extracting industries and require this knowledge to better
understand the economics of monetizing resources after a molecule is
produced.Use of APIs for Enterprise workflow i.e. strictly no Excel, csv or use of other local files.
Data wrangling and parsing. You must use tidy data with long and wide data frames.
Choice of effective visualization in communication.
Data analytics and an ability to tell a story from it.
Foundational risk management skills.
Clean, clear and concise rendering of a business document. You may refer to quarto.org or any other online document to customize your output. I reserve the right to award a maximum of 50% for any document not properly presented. Some characteristics of a properly presented document:
Each question should be answered as if you were presenting to a client: you would not show code to a client!
Learning to learn:
arrow::read_feather() function is a
good example of a package that is not covered in class but is a good
example of a package that is used in the industry to import data
frames.Whilst there are many packages to format tables the following are suggested:
You will use the following sources of data:
You will be using data from the US
Energy Information Administration and
Morningstar Commodities.
The RTL::fizdiffs randomized data sets of Crude oil
prices in key trading locations across North America:
At this point in class, assume that the WCS grade is traded at a discount/premium to the WTI grade in Cushing, OK. Much in the same manner as if I tell you that the price of the benchmark apple pricing in international trading is the Fuji apple and the price of a Macintosh apple is traded at a discount/premium to the Fuji apple.
Simplified NA Energy Infrastructure Maps
quarto, render into a clean and concise
html document. No .Rmd file will be
accepted.firstNameLastName.qmd and send it to
pcote@ualberta.ca before the deadline.tidyverse workflow.package::function() for all functions used in your code as
well as loading unnecessary packages in your qmd file.SmartOil needs context on the level and trends of
Canadian exports to the US since 2009-01-01.
Use the following data from the EIA to tell the
story.
You are free to use the arrow package to import the
data, or use the RTL::eia2tidy() and/or
RTL::eia2tidy_all() functions to extract the data via the
EIA API. If you choose the latter, you will need to use the tickers are
NG.N9102CN2.M and PET.MCRNTUSCA2.M
respectively.
The benchmark crude oil grade in Alberta is
Western Canadian Select ("WCS"). SmartOil
executives need factual information on the value of WCS a
producer may obtain by selling in Alberta or exporting to Houston. This
export additional value is then compared to the costs and risks of
taking on pipeline shipper commitments.
SmartOil is only concerned with economics from
2019-01-01 as the Government of Alberta introduced production curtailment legislation in 2018 limiting
downside risk.
Using the RTL::fizdiffs randomized dataset below,
prepare the following in your report:
SmartOil needs insights on the implications pertaining to a
potential negotiation on seeking a pipeline commitment instead of
selling WCS in Alberta.RTL::fizdiffs %>%
dplyr::transmute(date = date,
Alberta = WTI.CMA01 + WCS.HDY,
Houston = WTI.CMA01 + WCS.HOU)
## # A tibble: 1,691 × 3
## date Alberta Houston
## <date> <dbl> <dbl>
## 1 2017-01-03 37.8 45.3
## 2 2017-01-04 39.1 46.5
## 3 2017-01-05 39.7 47.1
## 4 2017-01-06 40.8 47.4
## 5 2017-01-09 39.0 45.2
## 6 2017-01-10 38.6 44.4
## 7 2017-01-11 39.8 45.7
## 8 2017-01-12 40.3 46.2
## 9 2017-01-13 39.8 45.6
## 10 2017-01-17 40.6 45.7
## # ℹ 1,681 more rows
SmartOil clients have at times to make decisions on
temporary storage and all they see in the financial news headlines is
the price of the WTI crude. As an additional example, you can find on
Marketwatch Crude Oil Continuous Contract the same
information on a different commercial data vendor. Hint: the first
example of how to extract these type of contracts from Morningstar is in
the tutorial on how to use Morningstar.
They are considering making decisions on storing from the 2nd to the 3rd contract month. You, as a specialist, know that there are futures contracts for different delivery months and using data from Morningstar from 2019-01-01 to 2024-01-31:
WCS crude in Alberta or Houston.mapply() as covered in class or purrr::pmap()
if you want to experiment. We will use the latter for more complex risk
management problems at a later stage.SmartOil often has to provide advice on matters of
financing terms. In this specific case, the client has the choice of
financing for:
The problem they have is that their usual decision-making process is of low quality: they have no idea as of today what the implied refinancing rate is and therefore engage in broad qualitative conversations around the future path of interest rates.
RTLedu::bankOffer
## # A tibble: 5 × 2
## maturity rate
## <dbl> <dbl>
## 1 1 0.0539
## 2 3 0.0489
## 3 5 0.0479
## 4 7 0.0486
## 5 10 0.0486
Insights Capital has also be retained to provide risk
management advice to a Bank who may be involved in underwriting and
holding the bonds issued by SmartOil. With your recent
knowledge of interest rate risk, you are asked to provide a risk profile
of the Bank’s portfolio of US Government bonds prior to entering into
transaction with the company.
The Bank will be holding the following US bonds in its portfolio:
All bonds are Constant Maturity Treasuries (CMT). You must use the relevant yield to maturities and coupons from FRED as of 2024-02-20.
You must:
y-axis should be changes in the value of
the portfolio in dollars and the x-axis should be the yield
change in percentage points across that range where zero is the current
ytm.